Jordan Rosenfeld
5 min read
Parents with low net worth may think life insurance isn’t necessary because they don’t have much in the way of assets to leave to their beneficiaries. However, financial and insurance experts say that’s a misconception.
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Life insurance can not only protect what you do have — it can help your kids and heirs build wealth over time. Here are seven reasons why parents should buy life insurance, regardless of their net worth.
Life insurance is one way for lower-earning individuals to leave their kids a financial cushion far greater in value than their net worth at the time of their death, according to Cynthia Campos Delgado, founder and financial advisor at Campos Wealth Management.
“Many times, [insurance can be] much larger than what they can accumulate on their own,” she said. “Life insurance is buying a set amount of coverage, or death benefit, usually in a large amount.”
When a family doesn’t have much set aside in savings, the sudden loss of a loved one can quickly become a financial emergency, according to Amanda Hamala, senior vice president and general manager at USAA Life Insurance. “Life insurance acts like a safety net — especially when times are tough.”
This is especially true if the person who passes away was earning income or contributing to the household in other ways. “Even a modest policy can keep the family from falling into crisis mode and give loved ones time to grieve without the added pressure of unpaid bills.”
Hamala noted that even a $20 monthly policy can mean the difference between stability and a financial tailspin for a family earning $40,000 a year.
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While many people get a low amount of life insurance through their employer, it comes with a problem. “[O]nce employment is terminated,” Delgado said, “the coverage usually is as well.”
Additionally, the cost of insurance increases as the participant gets older. If an employee opted to participate and many years later, chose to stop working, the cost of the same insurance “would be significantly higher due to age and the loss of the group rate.”
While your personal costs end when you pass, your family’s don’t. Hamala said funeral expenses can range from $8,000 to $15,000, and most families don’t have that much sitting in a bank account.
